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Monday, 17 May 2010

Ricoh undercuts NPE profit potential

If other U.S. courts follow the lead of Wisconsin District Court Judge Barbara Crabb, NPEs (non-practicing entities, or "patent trolls") may soon see an end to their massive settlement winnings. Last month, office equipment manufacturer Ricoh won an infringement action against Taiwanese company Quanta Computer. But Crabb rejected Ricoh's request for an injunction to prevent Quanta from selling the patented optical drives at the heart of the suit. Pointing to eBay(547 U.S. 388 (2006)), the judge diverged from traditions of presumptive injunctive relief in cases of patent infringement cases, and instead appeared to establish certain criteria for distinguishing among types of patent holders. Such criteria seemed intended as a direct hit against NPEs.

Crabb was unpersuaded that Ricoh would suffer irreparable harm if an injunction did not issue. To justify this analysis, she relied on the eBay concurring opinion:

"When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

This language appears to specifically target NPEs; Judge Crabb explicitly contrasted such "entities" with researchers, independent inventors, and direct market competitors -- the latter classes apparently being more deserving of injunctive relief against infringers. Because Ricoh does not manufacture or sell the patented optical disc drive, Crabb reasoned that the plaintiff was not Quanta's direct competitor, and thus would not suffer irreparable harm in the absence of an injunction.

But she also turned an eye to the plaintiff's intent; since Ricoh had previously licensed its patent to numerous companies, Crabb decided that Ricoh's main motive was not "to narrowly limit the practice of its invention," but was rather to "simply maximize a potential licensing fee." And: "[b]ecause that is not an adequate ground for an injunction, plaintiff’s motion for a permanent injunction will be denied." The parties were ordered to negotiate a compulsory license for future use.

This policy-based decision may be one court's way of addressing the U.S. Congress's failure to heed the pleas of large companies and end the plague of the "patent trolls." It does remove one bargaining chip from the NPEs' stable of tricks. By hitting NPEs where it hurts -- in their pocketbooks -- the court may well accomplish what Congress never could.